Many importers want to have their own (customized) products made in China. One common mistake they make is forget to calculate the entire project costs. In particular they forget about Non-Recurring Engineering (NRE) costs — many companies call this R&D.
Some Chinese suppliers make it all look so easy at the beginning… To avoid this trap, you should understand what NRE includes.
What is Non-Recurring Engineering?
Non-Recurring Engineering (NRE) is a general term associated with up front one-time payment costs on your new product development project. It is the cost of getting a product into production and does not count when it comes to product unit cost during mass production.
NRE costs generally includes wages for the development staff, supplies including prototypes and testing (for performance, but also for certification to certain standards) and any other development activity that costs money. These are all pre-production costs. In this post, however, we will be looking at the more tangible items such as tooling and other pre-production hardware.
NRE can refer to different activities depending on the type of products to make. We will discuss the NRE costs for projects that involve injection molding, casting, printed circuit board assemblies, and apparel production.
Products that have plastic components
Plastic parts are generally produced by injecting polymer into a steel mold that has the shape of the product cut into it. Once the polymer has cooled, the plastic part takes on the permanent shape of the mold. These steel mold tools would be your NRE costs for this part of the project.
The costs would normally be spread over a period of time while the tools are being manufactured, generally the payment structure would be first payment with purchase order, then a second payment when the tool is ready for initial trials and a final payment when you sign off the tool fit for production.
Cost of tooling: $50,000, to be paid as per below schedule.
- Initial payment 30%: $15,000
- Second payment 50%: $25,000
- Final payment 20%: $10,000
Note: percentages may differ between suppliers; always check the payment terms with your supplier before you start working with them!
Die Casting projects
Casting is the process of poring molten metal into a mold to produce a finished metal product. Similar to injection molding, casting requires a steel mold tool. However, there are different methods used for casting, some of which use sand as the mold (in that case there would be a wooden or metal pattern in the shape of the final product).
You would also require a clipping tool that is dedicated to your product as it would be manufactured to your product profile. The clipping tool removes any flash, feed and vent system from the casting as cleanly as possible.
NRE Items for casting:
- If die casting: steel die tools + clipping tools
- If sand casting: pattern + clipping tools
PCB Assembly projects
When it comes to the production of PCB assemblies, NRE is generally split into two distinct areas: hardware tooling and machine programming.
Because every new design of PCB is unique, a new set of tools is required for each PCB. That is also true when it comes to programming all the production line equipment such as pick-and-place machines and oven profiles. Below is a list of NRE activities generally associated with printed circuit board projects.
PCB Tooling NRE includes:
- Mylar films
- Outline die
- Jigs & fixtures
- Functional test rig
PCB Programming NRE includes:
- Drill profile
- Pick and place
- Vision inspection
- Flying probe inspection
- Selective soldering
- Reflow over profile
- Routing machine
- Function test rig
Apparel Production NRE
The apparel industry is just like any other when it comes to NRE costs. There are set-up costs for every product before it reaches mass production.
Some of the NRE associated with apparel production are:
- Sample fabric and accessories
- Preparation of patterns (either drawn by hand on paper, or on specialized software such as Lectra or Gerber) by a modelist
- Sample production of one size for approval
- Sample production of full size set for approval
- Die cutting set-up (if applicable)
Some of the NRE costs may be higher than the value of the first order. However, you should remember that these are one-time only costs to get your product into production.
Tooling can used to produce hundreds of thousands, if not millions, of products once you start mass production. Therefore, the initial investment into NRE is money well spent if the quantity to be produced over the coming years is high.